If the setting is not enough of a clue to the origins of the 3,119 pieces of art in the building, then the labels on each piece are certainly a giveaway. HMP Holloway, HMP Gartree, HMP Full Sutton and Broadmoor Hospital are just some of the places detailed on the luggage labels attached to each artwork. These are all submissions for the Koestler awards, a sort of Turner prize for prison inmates. This year brings the promise of wider exposure in the art world: the annual exhibition of 200 entries is moving from its usual church hall setting to no less a venue than London's Institute of Contemporary Arts (ICA). "It is such a big deal for these guys," says Dean Stalham, a Koestler Trust arts assistant who is showing me round the building. Stalham should know, as he himself won two Koestler awards during a three-and-a-half year sentence. One was for painting, the other for playwriting, part of the non-visual category (including writing, music and the spoken word) that this year attracted 1,683 entries.
"Having that time to work was invaluable," says Stalham, whose play Sporadicity recently had a week-long run at Islington's Pleasance Theatre. "It has totally turned me around. Winning the awards was a real turning point. I didn't know if I was any good at these things I was trying - I had never really read a play before I started writing one."
Founded in 1962 by writer Arthur Koestler, who spent three months incarcerated during the Spanish civil war, the awards were set up to encourage creativity among inmates. Koestler had found that writing was the only thing that kept him sane in prison, and he used the money he earned from his books, such as Darkness at Noon, to fund the scheme. Around a quarter of the works submitted win an award, with 600 attracting cash prizes of between £20 and £100.
The artworks at Wormwood Scrubs vary from the bizarre to the beautiful. Bob Marley is picked out in a collage made from used stamps; LS Lowry-style men walk a prison yard; there is a surrealist sculpture of a prison cell inside a prisoner's head, and another of a Dalek with a pink baby, entitled Madonna and Child. There is humour, tragedy and fantasy. Some of the art merits the label outsider, or naive, while other works are surprisingly accomplished. I find myself wondering about the offences the artists may have committed, but the art arrives at the Koestler Trust unburdened by such associations. The judges never know whether entrants are in for television licence evasion or murder.
In a room full of ceramics, one eye-catching piece is an intricately painted urn, an obvious homage to the work of Grayson Perry - one of the judges of this year's awards. "With all these thousands of pieces of work, you just have to be really instinctual about it," says Perry, describing the judging process. "There was no trouble finding enough good work, but when you have giant sculptures of cars made out of papier-mache then it has to be good. There is fantasy, portraiture, matchstick work, pseudo-erotica. There are quite a lot of portraits of tigers too, which I suppose is to do with symbolism of freedom and power. In the context of the ICA, it will be odd. But odd is good."
Artists Jeremy Deller and Alan Kane, who feature prison art in their Folk Archive project, were approached by the ICA to help the gallery connect with prison art. They also have high hopes for the show. "This will be the alternative Summer Exhibition," says Deller. "In a way, the Royal Academy Summer Exhibition is about a middle-class Britain, and this is about the criminal class of Britain." Kane, too, reads class issues into the exhibition. "Prison is the only place where working-class men are encouraged to make art," he says.
Tim Robertson, director of the Koestler Trust, has seen art move some of the most unlikely people. "At one prison I visited, I met this burly, shaven-headed cliche of a convict," he says. "I said, 'I understand you won an award for your watercolour last year.' He filled up with tears. He came and found me later and said, 'Sorry I got so emotional, but when I showed that certificate to my mother in the visiting hall, it was just one of the most moving moments in my life.'"
At HMP Parc on the outskirts of Bridgend, Wales, there is also much excitement - this time about the announcement of award winners. It is unlikely that any of those who entered work will be able to enjoy drinks at the show's opening tomorrow, but no amount of champagne could have prompted the kind of smile that appears on inmate Dean Burford's face when he hears he is a winner. "I'm chuffed to bits," says 29-year-old Burford, who is being recognised for his woodwork. "Before now, I have never been confident. I had to prove to myself I could do things. No one has really had anything good to say about me before."
Also among the eight award winners at Parc is Phil Bevan, a shy 20-year-old, who grins hugely on hearing he has won an award for painting. "It gives you a sense of fulfilment just seeing a completed piece of work, and how all your effort can come together in one piece," he says. "I think I may continue now."
Working with prisoners on a daily basis, Parc's arts intervention manager Phil Forder is in no doubt as to the awards' effects: "Someone in one of my lessons said to me, 'I like drawing because when I draw, that is the only time that I forget I am in here.' And that is what Koestler said. He said if he had not had art in prison, he would have gone mad. And I totally believe it" .
· Insider Art is at the ICA, London, from tomorrow. Details: 020-7930 3647.
See also Iain's website at http://www.iainaitch.com